Changes to financial planning laws will inject billions into the economy

MARK COLVIN: Australia's super industry funds say the Government's changes to the financial planning industry could inject billions of dollars into the economy.

The Financial Services Minister Chris Bowen today announced sweeping reforms to the way financial planners provide advice. These include banning commissions.

Mr Bowen admits some financial planners will fold because of the changes but he says that overall the tighter regulations will be good for Australians.

The Australian changes also have echoes in Washington, where Democrats and Republicans are getting closer to finalising the Wall Street reform bill.

Di Bain reports.

DI BAIN: It could do some financial planners out of a job but the Financial Services Minister, Chris Bowen, says transparency in the industry is overdue.

CHRIS BOWEN: We need to send a very clear and strong message through our laws that Australians deserve first class financial advice, advice which isn't tainted by commissions or kickbacks, advice which is clearly in their best interests and nobody else's. That is what these reforms will deliver.

DI BAIN: Under the new laws, financial planners will no longer be allowed to accept commissions for providing advice. From 2012 they must give their clients an option to pay fees. It can't automatically be added to the bill.

It's estimated there's about 18,000 financial advisers in Australia that'll be affected by the changes. These include the big banks.

Deen Sanders from the Financial Planning Association say it's a radical change for the industry that needs to be analysed closely and it could see fees for financial advice going up.

DEEN SANDERS: There certainly are some concerns in the reform package but mainly the sheer scale. This is probably, quite probably the largest reform package we've seen since financial services reform itself in 2003 and it will have an impact on the wider financial services community not just on financial advice.

But the nature of the recommendations are literally going to impact on financial service providers all up and down the chain of, the chain of engagement, if you like.

DI BAIN: The Opposition Leader, Tony Abbott, says the changes appear to be an attack on small business.

TONY ABBOTT: As Bernie Ripoll, the Labor chairman of the parliamentary inquiry, said it would be wrong to entirely scrap commissions. Certainly if the commissions are upfront and transparent I don't necessarily have a problem with them.

So it looks to me like another attempt by the Labor Party to have a go at small business.

DI BAIN: However super industry funds have hailed the reforms.

David Whiteley, the chief executive of Industry Super Network, says it's going to generate billions of dollars in retirement savings.

DAVID WHITELEY: More than $1 billion won't be ripped out of workers' superannuation accounts on an annual basis by financial planners. These measures mean that over the next decade over a $100 billion will be added to national savings.

DI BAIN: It was the collapse of Westpoint, Storm Financial and Opes Prime which has prompted the Government's crackdown on financial planners.

Storm encouraged thousands of investors to use the equity in their homes to invest in its products. It collapsed at the heart of the financial crisis owing mum and dad investors about $4 billion.

Australia's moves on regulating the finance industry coincides with a strong push for legislative changes in the United States. The Republicans and Democrats have been locked in discussions about a reform bill to regulate the American financial system.

Over the weekend, Democrat Senator Chris Dodd and key Republican negotiator, Richard Shelby were on Meet the Press. Mr Dodd said they're close to finalising a reform bill.

CHRISTOPHER DODD: Again, I think Richard would have a pretty good understanding of where we are in these matters. We can't take care of everything in the bill. Obviously our colleagues are going to want to be heard but we've been through an awful lot now.

We've lost almost $11 trillion of household wealth in the last 17 or 18 months, seven million homes in foreclosure, eight and a half million jobs have been lost. Retirement incomes have declined by 20 per cent, housing values declined by 30 per cent and this morning's news obviously about Goldman Sachs, here we are 17 months after someone broke into our house, in effect, robbed us and we still haven't even changed the locks on the doors and we need to get it done.

DI BAIN: Mr Shelby said it was complex legislation.

RICHARD SHELBY: We're conceptually very, very close. This is very complicated piece of legislation over 1,300 pages as the Dodd bill now stands but we're, what trying to do is improve two or three things in it. It's very, very tedious.

We've got to continue to work today as Senator Dodd said. I think we're closer than we've ever been.

DI BAIN: US debt levels have now reached $13 trillion and over the weekend at the World Bank spring economic meetings in Washington there was a warning from China.

The Chinese Central Bank governor says such sovereign debt is risky. He says it's become a major threat to the stability of the global financial system and its economic recovery.